Asymptotics of robust utility maximization

Abstract

For a stochastic factor model we maximize the long-term growth rate of robust expected power utility with parameter $\lambda \in (0,1)$. Using duality methods the problem is reformulated as an infinite time horizon, risk-sensitive control problem. Our results characterize the optimal growth rate, an optimal long-term trading strategy and an asymptotic worst-case model in terms of an ergodic Bellman equation. With these results we propose a duality approach to a "robust large deviations" criterion for optimal long-term investment.

Published in at http://dx.doi.org/10.1214/11-AAP764 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

References in corpus (1)

• On the structure of solutions of ergodic type Bellman equation related to risk-sensitive control